High mortgage rates, worsening market outlook tighten lending standards

By Housing News

Lending standards tightened for the eight consecutive months ending in October as mortgage rates remained elevated and the housing market outlook worsened, the Mortgage Bankers Association (MBA) said on Thursday.

The mortgage credit availability index (MCAI) fell by 0.5% to 102 in October, declining to its lowest level since March 2013. A decline in the MCAI – benchmarked to 100 – indicates that lending standards are tightening, while increases in the index are indicative of loosening credit.

“Lenders continue to reduce their capacity and are eliminating some loan offerings, including certain types of refinance loan products and others that require less than full borrower documentation,” Joel Kan, MBA’s vice president and deputy chief economist, said in a statement. 

But while credit tightening was notable for conventional loans, credit loosened for the jumbo segment.

The Conventional MCAI decreased 1.5%, in October while the Government MCAI increased by 0.4%. Of the component indices of the Conventional MCAI, the Jumbo MCAI decreased by 2.5% and the Conforming MCAI remained unchanged.

On the homebuyers’ side, demand for mortgages slowed in October as rates surpassed 7% levels, resulting in weaker home purchase units. 

Rates have been volatile following the Federal Reserve’s efforts to curb inflation. After peaking at 7.16% in October, rates have been on a declining trend, falling to 6.33% this week, according to Freddie Mac.

The drop, however, hasn’t been enough to spur activity among homebuyers. Mortgage applications fell 1.9% this week compared to the Thanksgiving holiday-adjusted results from the previous week.

While mortgage rates are expected to drop lower in 2023, the forecast for the housing market is expected to get gloomier next year.

The mortgage market is projected to slip to $1.74 trillion in 2023 from the expected $2.34 trillion this year, according to Fannie Mae forecasts. The agency expects single-family home sales to plummet to 4.42 million next year after posting 5.67 million in 2022. 


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